A small Maine city may have set off a big fight over oil movements

The next big fight in the war over oil and gas development in the US — or at least one of the next big fights – will be over local control. That issue ramped up this week and appears to raise a significant question of federalism.

The city council in South Portland, Maine, voted this week to approve a package of zoning restrictions that would affect the handling of crude oil in the city. But the laws were drawn to impact the handling of oil being put on to tankers. It doesn’t affect oil being taken off tankers.

Why this is significant is because South Portland is the eastern terminus of the Portland-Montreal Pipeline, which takes crude oil imported into Maine and brings it to Montreal near the St. Lawrence Seaway. It can be refined in Montreal, or moved down Line 9 to Canadian refineries in Ontario.

But the Portland line, from all indications, sits pretty empty most of the time now. (US import data doesn’t reflect crude oil coming in to move through the pipeline, because it is only transiting US territory, not actually clearing customs.) That the line is mostly idle isn’t surprising — the crude that would come into it is part of the broader Atlantic Basin Brent-based market and competes with the Canadian and Bakken oil that comes into Ontario via the Enbridge system. And that oil, more importantly, is based on the cheaper WTI market, making it tough for any crude from the Portland line to compete.

Enbridge has Canadian government approval to reverse its Line 9 to move 300,000 b/d of Western Canadian crude from southern Ontario to Montreal. On top of that, the owners of the Portland line–a group that includes major oil sands producer Suncor-–have for several years been studying whether they should reverse the line to transport oil to Maine for re-export.

Because it’s Canadian crude, there would be no issue with US government restrictions on the export of US crude. So the scenario is that oil sands crude comes up Line 9, transfers to a reversed Portland line, and gets exported to world markets out of South Portland.

But because much of that oil would be oil sands-based, anti-sands activists lobbied the South Portland council to pass the package of restrictions.

(Despite the pipeline’s declaration several years ago that it was studying reversal, in one story about the vote, pipeline company vice president Tom Hardison was quoted as telling the council members that his company had no plans to reverse the pipeline’s flow from Montreal down to the Maine coast.)

This act raises all sorts of questions about the extent of local control. There’s no question that a local government can’t stop a pipeline; that is considered interstate commerce and therefore under the control of the federal government. But what about instances when the crude leaves the line and goes into tanks and other handling facilities?

Localities do have some control over those activities. But if the actions are seen as so sweeping and targeted primarily not at legitimate safety concerns, but at stopping some of that interstate (and international) commerce dead in its tracks, does a court reverse these restrictions in the litigation that these restrictions are sure to trigger? (For example, and I’m not a lawyer, but why is handling crude oil that’s coming in for transit on the line not inherently dangerous to the town, while handling it for export is?)

And South Portland knows that’s coming. In his reporting on the issue, Platts’ Herman Wang had this quote from the city’s mayor, Jerry Jalbert: “If there was a lawsuit, whether on constitutional grounds or federal pre-emption grounds, we are confident we will prevail.”

He also noted the formation of a legal defense fund, because defending this move, with its enormous questions of federalism, is probably going to cost a tad more than the usual legal bills for South Portland.

So there’s that local battle. Then there’s the New York court ruling on local restrictions on fracking that went against industry (albeit in a state that still has a moratorium on fracking). And while a move to try to restrict fracking in Colorado took a hit recently, it is still moving ahead on other fronts.

The oil and gas industry loves to bash Barack Obama, but the president is increasingly the least of its problems. A mayor who also runs a local Ford dealership and the council member who also owns the town’s biggest funeral home — the types of people who form the backbone of local governments all across the country — might have a far bigger impact on the progress of US hydrocarbon production than the man who sits in the Oval Office.

And in the case of South Portland, it just might take the nine members of the Supreme Court to sort out the sticky federalism issues that have been raised with this vote.